Redundancy in New Zealand: Expert Guide to Fair Employment Processes
Let's be honest, redundancy is one of the toughest situations anyone in the workplace can face. For employers, it’s a legal minefield. For employees, it's a deeply personal and stressful experience. This guide is here to cut through the complexity and provide a clear, practical path through New Zealand's redundancy laws.
We'll break down the core principles of good faith, fairness, and consultation that underpin every fair redundancy process.
Your Complete Guide to Redundancy Law in New Zealand
Navigating a redundancy can feel overwhelming. Get it wrong as an employer, and you could be facing a costly personal grievance claim. As an employee, the uncertainty can be immense. Our goal here is to demystify the entire process, framing redundancy not as a crisis, but as a structured transition that can be managed correctly and compassionately.
It’s a topic that's more relevant than ever. Recent economic shifts have seen New Zealand's seasonally adjusted unemployment rate rise from around 3.3% in early 2023 to 5.2% by the June 2025 quarter—its highest point since 2020. This jump means about 156,000 Kiwis are out of work, reflecting a tighter job market where restructuring is becoming more frequent. You can explore the full labour market statistics from Stats NZ to get a clearer picture of these trends.
What This Guide Covers
We’ve designed this guide to be a reliable roadmap for everyone involved. We’ll walk you through all the essential aspects of redundancy in New Zealand, giving you the information you need to move forward with confidence and respect.
Here's what we'll cover:
Defining a Genuine Redundancy: We'll unpack the crucial difference between a legitimate business decision and an unfair dismissal.
A Step-by-Step Employer Process: Think of this as your practical checklist for running a fair and legally sound redundancy procedure.
Employee Rights and Entitlements: A clear breakdown of what employees are owed, from notice periods to final pay calculations.
Exploring Alternatives to Redundancy: A look at redeployment and other options you're legally required to consider.
Common Mistakes to Avoid: We’ll highlight the procedural tripwires that often lead to legal challenges down the track.
At its heart, a fair redundancy process comes down to a few key principles. This table summarises the legal bedrock you need to build your process on.
Key Principles of Fair Redundancy in NZ
| Principle | What It Means |
|---|---|
| Genuineness | The role must be disestablished for real business reasons (e.g., restructure, downturn, new technology). Redundancy cannot be used to manage poor performance. |
| Good Faith | Employers must be open and communicative, providing employees with all relevant information. |
| Fair Process | Consultation must happen before a decision is made. Alternatives must be explored, and employee feedback must be genuinely considered. |
| Consultation | This is not just telling employees what will happen. Employers must present a proposal, allow time for responses, and approach the process with an open mind. |
These principles aren't just legal tick-boxes; they ensure that decisions are made fairly and transparently, respecting the dignity of everyone involved. The focus must always be on the role, not the person in it.
This is a critical distinction that Employment New Zealand makes clear:
"A redundancy is genuine if the employer’s decision is based on commercial reality and they follow a fair process. The focus is on the position, not the performance or conduct of the individual employee."
By keeping these principles front and centre, you can navigate this difficult transition with far greater clarity and integrity.
Let’s start by properly defining what makes a redundancy genuine.
Defining a Genuine Redundancy
When it comes to redundancy in New Zealand, one question stands above all others: is it genuine? In the eyes of the law, the answer boils down to a single, critical idea: the role is no longer required, not that the person is no longer wanted.
Think of it like a sports team completely changing its game plan. The coach might decide they no longer need a certain type of defender because the new strategy calls for an extra attacker. The decision is purely about the position and what the team needs to win—it’s not a reflection on the defender's skill or past performance.
This distinction is the absolute bedrock of a fair redundancy process. The decision must be driven by legitimate commercial reasons.
What Is a Genuine Commercial Reason?
A genuine commercial reason, often called commercial justification, is the 'why' behind the restructure. It's not enough to just say you're restructuring; you need a solid business driver that any fair and reasonable employer would likely act on in the same situation.
Some of the most common justifications we see are:
Technological Advancements: A new piece of software or machinery automates a task, making a manual role obsolete.
Mergers and Acquisitions: When two companies join forces, you often end up with two people doing the same job. One of those roles might need to be consolidated.
Financial Downturn: Perhaps a major client was lost or revenue has dropped, forcing the business to tighten its belt and reduce operational costs.
Operational Restructuring: The market has shifted, and the business needs a different set of skills or roles to stay competitive and adapt its strategy.
These reasons are all about the business's structure and needs. The process falls apart legally when a manager tries to disguise a performance or conduct issue as a redundancy. This is what's known as a "sham redundancy," and it's a fast track to serious legal trouble. An effective HR framework is vital for understanding that performance management is a completely separate process. You can learn more about why HR is so important in our dedicated article.
The Role Versus the Person
This is the ultimate test. A redundancy becomes unlawful the moment the focus shifts from the job's existence to the person currently in it. An employer simply cannot decide they want to get rid of someone and then engineer a restructure to make it happen.
A genuine redundancy is about the disestablishment of a position. A dismissal is about the person's conduct or performance. Confusing the two is one of the quickest ways to face a personal grievance claim for unjustified dismissal.
For example, imagine a business makes its "Marketing Coordinator" redundant. But then, a month later, they hire a "Marketing Specialist" whose job is 80% or more similar. That original redundancy would almost certainly be seen as a sham. The title changed, but the core function of the role never really went away.
This principle holds true even during massive restructures driven by economic pressure. Between 2023 and 2025, New Zealand's public sector saw huge cuts, with over 10,000 jobs going across various ministries. Even in an overhaul of that scale, the legal test for every single disestablished role remained the same: was the position genuinely surplus to requirements?
The Test of a Fair and Reasonable Employer
So much of New Zealand employment law comes back to this one simple question: what would a fair and reasonable employer do in the same circumstances?
This means your commercial justification for a redundancy has to be logical and hold up under scrutiny. You don't have to prove your business decision was flawless, but you do need to show it was based on real business needs.
Crucially, you also need to demonstrate that you followed a fair process to get there. This involves acting in good faith, sharing all the relevant information with affected staff, and genuinely considering their feedback before any final decisions are locked in.
The Employer's Step-by-Step Redundancy Process
Let's be honest, handling a redundancy is one of the toughest parts of running a business. It’s not just a box-ticking exercise; it’s a process that needs to be handled with care, fairness, and a solid understanding of your legal obligations. Getting it wrong can be costly, both financially and for your company’s reputation.
Think of it like building a house. You can't just throw up the walls and hope for the best. You need to lay a proper foundation, follow the blueprints, and make sure every step is solid before moving to the next. Skipping a step could bring the whole thing crashing down.
This flow chart gives you a bird's-eye view of the essential stages.
As you can see, genuine consultation sits right at the heart of everything, bridging the gap between your initial proposal and the final outcome.
Step 1: Prepare Your Business Case and Change Proposal
Before you even think about talking to your team, you need to get your ducks in a row. This starts with a rock-solid business case. You have to be crystal clear on why this change is needed. What's the commercial reality driving this? Is it a merger, a major drop in revenue, or new technology making a role obsolete?
This internal justification is your foundation. It needs to be logical, backed by evidence, and focused purely on genuine business needs, not on an individual's performance.
Once you have that sorted, you can draft the formal change proposal. This is the document you’ll share with your staff, and it needs to clearly outline:
The commercial reasons for the proposed restructure.
The specific roles that could be affected.
A proposed timeline for the consultation and final decision.
Any potential options for redeployment within the business.
This document kicks off the conversation, so it has to be detailed enough for your people to truly understand the situation and give you meaningful feedback.
Step 2: Begin the Consultation Process
This is the most critical part of the entire process, and frankly, where most employers trip up. Consultation isn't about telling your employees a decision has already been made. It’s about putting a proposal on the table and genuinely asking for their thoughts before you make the final call.
A fair and reasonable employer has to go into consultation with an open mind. If you’ve already decided the outcome, the process is a sham, and you’re opening yourself up to a personal grievance claim for unjustified dismissal.
You must provide all the relevant information your employees need to understand your reasoning. Give them a decent amount of time to digest it and come back with questions or suggestions.
It’s a two-way conversation. You are legally required to listen to and genuinely consider everything they bring to the table. They might suggest alternatives you hadn't even thought of, like moving to part-time hours, job sharing, or other cost-cutting ideas that could save their jobs.
Step 3: Consider All Feedback and Make a Final Decision
Once the consultation period closes, your job is to methodically work through all the feedback. Document this part of the process carefully. You need to show that you've considered every suggestion and have a clear rationale for why you’ve either accepted or declined it.
For instance, if someone suggests a pay cut to save their role, you need to analyse if that actually solves the underlying business issue. If it doesn't, you can explain exactly why that alternative, while appreciated, isn’t commercially viable in the long run.
Only after you have properly considered all this input can you make your final, informed decision. That decision might be to go ahead as planned, tweak the proposal based on the feedback, or even scrap the restructure entirely.
The crucial point is that the decision is made after consultation, not before. Remember, a staggering 64% of unjustified dismissal claims at the Employment Relations Authority in 2023 were found in the employee's favour, often because of a flawed process like a predetermined consultation.
Step 4: Communicate the Final Decision
Finally, you need to deliver the news. This should always be done in a private, face-to-face meeting where possible. If the outcome is redundancy, you must follow it up in writing.
This written confirmation needs to cover:
A clear statement that their role is being disestablished.
The reasons behind the final decision, including a summary of how their feedback was considered.
The official end date of their employment.
A full breakdown of their final pay, including notice, holiday pay, and any other entitlements.
Information on any support available, like an Employee Assistance Programme (EAP) or outplacement services.
Throughout this final stage, empathy and professionalism are non-negotiable. The way you handle this conversation will leave a lasting impression, not just on the departing employee but on the morale of your entire remaining team.
A fair, transparent, and respectful process isn't just about legal compliance—it speaks volumes about your company’s values.
To help you stay on track, we've put together a simple checklist that breaks down the key actions and common pitfalls at each stage of the redundancy process.
Redundancy Process Checklist for NZ Employers
| Step | Key Action Required | Common Mistake to Avoid |
|---|---|---|
| 1. Preparation | Develop a strong, evidence-based business case. Draft a detailed change proposal. | Proceeding without a genuine commercial reason. The proposal being too vague. |
| 2. Consultation | Provide all relevant info to affected staff. Genuinely invite and listen to feedback. Allow reasonable time for responses. | Making a final decision before consultation starts. Rushing the process. |
| 3. Consideration | Thoroughly and fairly review all feedback received. Document your consideration process and rationale for each point. | Dismissing feedback without proper thought. Failing to document the decision-making process. |
| 4. Final Decision | Make a final decision after considering all feedback. Prepare for and conduct private, face-to-face meetings. | Announcing the decision publicly before telling the affected individuals. |
| 5. Confirmation | Provide a formal written letter confirming the redundancy, reasons, end date, and final pay details. Offer support. | The written confirmation lacking key details or failing to explain how feedback was considered. |
Following these steps methodically will not only ensure you meet your legal duties but will also help you manage a difficult situation with the respect and integrity your employees deserve.
Employee Rights and Final Entitlements
If you're an employee facing redundancy, it’s easy to feel powerless. But it’s vital to remember you have fundamental rights designed to protect you. These aren't just "nice-to-haves" for your employer; they are legal obligations that ensure you're treated fairly, even when your role is on the line.
The absolute bedrock of your rights is the entitlement to a fair process. This means your employer has to genuinely consult with you before any final decision is made. It also means you have the right to bring a support person—like a union rep, lawyer, or even just a trusted friend—to any meetings about the proposed redundancy.
This process isn't a tick-box exercise. Your employer must give you all the relevant information behind the proposal and a real chance to give feedback. And they have to seriously consider what you have to say.
Understanding Your Employment Agreement
When it comes to your specific entitlements, your employment agreement is your bible. It’s the rulebook that spells out exactly how your employment will end, detailing your notice period and any compensation you might be owed.
Pull out that contract and read it carefully. It will state the exact notice period your employer must give you, which could be anything from a few weeks to several months. They can either have you work through this period or pay you in lieu of notice, but they can't give you less time than what's written in black and white.
For business owners, this highlights why well-drafted employment agreements are so crucial. If you want to get this right, take a look at our complete guide to HR support for small businesses.
The Myth of Mandatory Redundancy Pay
Here’s one of the biggest misconceptions in New Zealand employment law: that redundancy automatically comes with a big payout. It doesn't. Unlike some other countries, there is no statutory right to redundancy compensation here.
Whether or not an employer has to pay redundancy compensation comes down to one thing: is there a specific redundancy clause in your employment agreement? If it's not in the contract, they are not legally required to pay it.
This little contractual detail has massive ripple effects, especially when the economy tightens. For example, between 2019 and 2023, skilled professionals in fields like accounting saw huge salary growth. But by 2024, economic jitters led to more restructures and many skilled Kiwis left for better deals in Australia and the UK.
Calculating Your Final Pay
Regardless of whether you get a redundancy payment, your employer absolutely must give you a final pay covering all your standard entitlements up to your last day. Getting this calculation right is key to a clean and fair exit.
Here’s what your final pay must include:
Wages Owed: Simple enough—payment for every hour you’ve worked up to your last day.
Notice Period Pay: Either wages for working your notice period or a lump sum if you’re paid in lieu.
Annual Holiday Pay: You must be paid out for any annual leave you’ve accrued but haven’t used.
Alternative Holiday Pay: Payment for any days in lieu you’ve earned by working on a public holiday.
Public Holiday Pay: If a public holiday falls during your notice period on a day you’d normally work, you’re entitled to be paid for it.
You have the right to receive an itemised payslip that clearly breaks all this down. If something looks off, don't be afraid to ask for a detailed explanation. Knowing exactly what you’re owed is the best way to make sure you walk away with everything you’re entitled to.
Exploring Redeployment and Other Alternatives
Let’s be clear: redundancy should always be the last stop, never the first. Before you even think about finalising a disestablishment, you have a legal duty to genuinely explore every other viable option. This isn't just about being a good employer; it’s a non-negotiable part of the good faith obligations that make a redundancy process fair and legally sound.
The most common and critical alternative to look at is redeployment. This means actively looking for other available roles within your business that the affected employee could reasonably step into. You can't just glance over the vacancies – you have to properly search for and consider these opportunities before making a final call.
What Makes a Role a Suitable Alternative?
Of course, not just any old job will do. The law considers whether an alternative role is a "suitable alternative" or "substantially similar." While there isn't a strict formula, a few key factors come into play.
A role is generally seen as substantially similar if it shares 80% or more of the same duties as the employee's current job. If you have a role that’s this close of a match, you’re pretty much obligated to offer it directly.
For other potential roles, you need to weigh up their suitability based on things like:
Pay and Conditions: The new job should offer a comparable salary, benefits, and terms. Proposing a role with a massive pay cut is unlikely to be considered suitable.
Location: Is the new position somewhere the employee can reasonably get to? Expecting someone to suddenly face a huge commute or relocate their family usually isn't on the cards.
Responsibilities and Status: The role needs to match the employee's skills, experience, and seniority. You can't offer a senior manager a junior, entry-level position and call it a suitable alternative.
Training Requirements: Could the employee do the new job with a reasonable amount of training? If they can get up to speed in, say, under six months, the role might well be considered suitable.
An employer’s duty is to genuinely investigate these options. Simply saying "there's nothing available" without actually looking is a breach of good faith and a common reason for a redundancy being challenged as unjustified.
Thinking Beyond Redeployment
While redeployment is front and centre, it’s not the only avenue to explore. A truly robust and fair process means getting a bit creative to try and avoid job losses. Thinking through these options shows you’re committed to your people and adds real integrity to the process.
During your consultation, you should also be talking about other possibilities, such as:
Reducing Hours: Could a full-time employee switch to part-time?
Job Sharing: Is it possible for two employees to share a single full-time role?
Retraining or Upskilling: Could you retrain an employee for a different role that the business now needs?
Temporary Layoffs: Is a temporary layoff an option, with an agreement to bring them back later? (This has to be agreed upon by both parties).
Offering Voluntary Redundancy: You can always ask for volunteers first. Sometimes this provides a perfect solution for everyone involved.
Digging into these alternatives isn't just about ticking legal boxes. It’s about holding onto valuable company knowledge and talent. A skilled employee who already knows your business inside and out is a massive asset. Finding a new way to use their skills is often far smarter—and cheaper—than starting the whole recruitment cycle from scratch.
Common Mistakes That Lead to Legal Challenges
Even when a redundancy is commercially necessary, a small process slip-up can turn it into a costly personal grievance claim. Getting the procedure wrong can unravel all your hard work and expose the business to serious legal risk. It pays to be meticulous.
Think of it like a legal chain—one weak link is all it takes for the whole thing to break. The most common errors often seem like minor details, but they carry a lot of weight when scrutinised by the Employment Relations Authority (ERA).
The Predetermined Outcome
The single biggest mistake you can make is the 'sham consultation'. This is where you've already made the final decision to make someone redundant before you've even sat down to talk with them.
Consultation has to be a genuine, good-faith discussion. You need to walk into that room with an open mind, ready to seriously consider any feedback the employee provides. If their ideas could genuinely change the outcome, you're on the right track. But if you've already got the redundancy letter printed and waiting, you've failed before you've even started.
According to New Zealand employment law, a fair and reasonable employer must enter consultation with an open mind. If the outcome is already decided, the process is fundamentally unfair, no matter how solid the business case for the change might be.
Using Unfair Selection Criteria
So, you have a few people in similar roles and need to select one for redundancy. How do you choose? Your selection criteria have to be fair, objective, and transparent. Getting this wrong is a surefire way to end up in legal hot water.
Stay away from these common traps:
"Last on, first off": This might seem straightforward, but it can easily be challenged as discriminatory, particularly on the basis of age.
Vague personality judgments: Using reasons like "not a team player" or "has a bad attitude" is far too subjective. These sound more like performance issues in disguise and are incredibly difficult to prove objectively.
Playing favourites: Relying on biased metrics or a 'gut feeling' without clear, measurable performance data to back it up is a massive red flag.
Instead, your criteria should be directly tied to what the business needs moving forward. You could rank employees on specific technical skills, relevant qualifications, or documented performance metrics. Having a robust HR policy in place before these situations arise is the best way to establish a fair and consistent framework.
Failing to Keep Detailed Records
If an employee challenges their redundancy, the onus is on you—the employer—to prove you followed a fair process. Without good documentation, it becomes a messy "he said, she said" situation. In 2023, a staggering 64% of unjustified dismissal claims that went to the ERA were decided in the employee's favour, often because the employer simply couldn't prove they had acted fairly.
Make sure you document absolutely everything:
The business case outlining the need for the restructure.
The formal change proposal given to affected staff.
Meeting minutes from every single consultation.
All employee feedback and your written response showing how you considered it.
The final decision letter, which clearly explains the rationale behind the outcome.
This paper trail is your best defence. It's the proof that shows you acted in good faith at every single stage of the process.
Your Redundancy Questions Answered
Even when you think you've got a handle on the process, restructuring often throws up a few curveballs. Let's tackle some of the most common questions that pop up when businesses navigate redundancy in New Zealand.
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In short, no. There’s no automatic legal requirement for an employer to pay redundancy compensation in New Zealand.
The only time it becomes mandatory is if a specific redundancy clause is written into an employee's employment agreement. If the contract doesn't mention it, the employer's only obligation is to provide the correct notice period and final pay.
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Yes, it’s possible. An employee on parental leave can be made redundant, but only if the redundancy is genuine and the employer follows a fair and proper process. The law protects the person, not the role; if the job is disappearing for legitimate business reasons, the leave doesn't provide immunity.
That said, the employer has to consult with the person on leave just as they would with any other affected employee. The decision to make the role redundant cannot be influenced by the pregnancy, the leave itself, or family status. Any hint of that, and you're heading straight into unlawful discrimination territory.
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This is probably the most crucial distinction to understand, and getting it wrong is a fast track to a personal grievance claim.
Redundancy is about the job no longer being needed for genuine commercial reasons. A dismissal, on the other hand, is about the employee's conduct or capability.
It all comes down to the "why."
Redundancy: The position is disestablished. Maybe new technology has made the role obsolete, or the company is closing a department. The focus is on the job.
Dismissal: The person is removed from their role. This is typically due to issues like poor performance, misconduct, or a serious breach of their employment agreement. The focus is on the individual.
Confusing the two isn't just a technicality; the legal processes are completely different. Never try to use a redundancy process to manage a performance issue.
Navigating the complexities of redundancy in New Zealand requires a steady hand and expert care. For professional guidance on restructures, HR processes, and legal compliance, explore the outsourced HR solutions offered by Konnect Koncepts.
This article reflects employment law and best practice in New Zealand as at September 2025. It is intended as general guidance only and does not replace professional legal advice tailored to your situation.
